Canada needs an additional 5.8 million households by the end of the decade to help lower average housing costs and ensure households spend no more than 40 per cent of their disposable income on housing, according to a new government report.
That target exceeds the current projection of 2.3 million new homes by 2030, according to the Canada Mortgage and Housing Corp. report, and would require new home construction at more than double current levels.
“There needs to be a drastic transformation of the housing sector,” said Aled ab Iorwerth, deputy chief economist at CMHC, adding that an “all-hands-on-deck approach” is needed to increase the country’s housing stock.
Although home prices nationwide are beginning to fall due to a sharp rise in interest rates and borrowing costs, they are still at least 50 percent higher than two years ago. In May, the price of a typical home across Canada was $822,900, with values well above $1 million in the Vancouver and Toronto regions.
“There are very significant economic risks to big cities if they don’t get housing costs under control,” ab Iorwerth said on a call to discuss the report. “It’s getting harder and harder to attract skilled and even highly skilled workers to these cities because they’re just becoming unaffordable,” he said.
The report is the first government study to attempt to quantify the housing supply shortage and adds another voice to the debate about the mismatch between supply and demand and the causes of the country’s housing affordability problem.
CMHC, the federal government and most of the real estate industry believe that the housing shortage is the main factor contributing to rising home prices. But some economists and housing advocates argue that prices have risen due to other factors, such as persistently low interest rates and an influx of real estate investors.
The CMHC report used 2003 and 2004 as the benchmark for affordability. The agency described those years as a period in recent history when housing costs were relatively low relative to median incomes and a time when the economy was stable. During that period, the average household spent about 35 percent of after-tax income on housing. That has since risen to nearly 50 percent nationally; 56 percent in Ontario and 58 percent in British Columbia.
For home affordability to return to 2003 and 2004 levels, CMHC said most of the 5.8 million new housing units are needed in Ontario and BC and housing costs would have to be significantly higher. low.
“Restoring affordability levels in these provinces means reducing housing costs by between a quarter and two-fifths,” the report says. Quebec also requires additional housing, although CMHC said the other provinces remain largely affordable for average-income households.
The report set targets for home prices to be considered affordable by 2030. For example, in Ontario, the median home price must be $551,000 for housing costs for the average household to be affordable below 40 percent of household disposable income. Last year, the median home price in the province was $871,000.
CMHC maintains that cost reductions do not mean that homeowners will see the value of their homes fall. Mr. ab Iorwerth provided an example where four single-family homes worth millions of dollars could be converted into hundreds of apartment units. That would lead to a decrease in the average price. “It doesn’t necessarily mean someone would lose the value of their home,” he said.
If economic growth slows significantly or the economy contracts for an extended period of time, the report said fewer homes would be required. Currently, demand from homebuyers has decreased as the cost of a fixed-rate mortgage has doubled in the last 12 months.
With the Bank of Canada poised to continue raising interest rates to stem inflation, there are fears the hikes could trigger a recession.
Homebuilders are expected to halt or cancel housing developments as construction costs have soared due to labor and material shortages.
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